Financial Investment and Planing for Nestle

Nestle (Malaysia) is providing goods with the aiming to serve foods and beverages of Nutrition, Health and Wellness to Malaysian. Nowadays, people are getting cautious and conscious with the health problem. They will be more aware with their diet and consumption. Due to this, indirectly the overall demand of Nestle will increase. Beside, food retail chains and disposable income is growing as days passed and this will eventually cause the variety for dairy product wider.

This allowed more options given to the potential consumers and increase the overall performance of Nestle.This company’s profit had affected by the economy analysis and industry analysis. Economy analysis had analysed how the world economy will affected business of the company and the industry analysis is deals with the competitors of the company. However, two of this problem has not affected too much on the profit of this company. We can see from the fundamental analysis that Nestle had made a profit in year 2009.

Nestle (Malaysia) has achieved a turnover by 4.30% to RM 3.3 billion when compare with previous year, year 2008.The fundamental analysis include short-term and long-term ratio.

In this report, we had 7 different ratios and analysis .We had calculated 3 ratio and analysis under short-term and 4 ratio and analysis under long term. Under short-term analysis we calculate liquidity ratio, profitability ratio, and activity ratio. However, under long-term ratio we had calculated and analysis the ratios of earning per share, per share ratio, and dividend payout ratio.

Nestlé’s policy is to maintain a successful long-term business development. This report is to provide an analysis of Nestlé’s financial position by analysing the information contained within the annual reports for the last 3 years which is from 2007 to 2009. The report will cover the fundamental analysis of the company which includes short term and long term. For short term analysis is liquidity ratios, profitability ratios, and per share ratios. Moreover, for long term analysis there is earnings per share (EPS), zero growth model and P/E approach.

For the financial report and the analysis of the newspaper report, we can clearly know that Nestle (Malaysia) has achieved a turnover by 4.3% to RM 3.4 billion, from RM 3.3 billion in 2008. This is due to the high and strong demand from domestic as well as from the export markets where most of the business unit operating under Nestle (M) Berhad such as Food, Nutrition, Confectionary, Liquid Drinks, Ice-Cream and Chilled Dairy are showing a stable growth over the year. The company has lower profit margin in 2009 because the sales are affected by higher input cost.

For instance, coffee bean prices increased by 20% whereas the prices of milk solid and palm oil have doubled compared to other years, causing the business to incur higher production cost (Nestle Malaysia 2007). In general, the company has achieved strong performance in 2009 with a final net dividend of 78.81 cents per share, giving a total net dividend of 113.81 cents per share. This is a 13.8% increase compared to 2007 and is the highest ever in the Group’s history.

Apart from that, the Group's continuous drive for Operational Excellence has helped to ease gross profit margin erosion where the profit margin before tax of the business increased to 11.6%, higher than that of the profit margin before tax of 2007 (Nestle Malaysia 2009).Nestle (Malaysia) began on 1912 in Malaysia and had publicly listed on the KLSE on 13 December 1989. Now, the company had manufactures more than 300 Halal products and employs 5000 people to manage the company. The products which manufactures by Nestle include Nespray milk powder, Milo (chocolate drink), Nescafe (Coffee), Nestle Ice Cream, Nestle Cultured Drinks, Nestle Breakfast Cereals, Maggie noodle, Maggie sauces and etc.

Nestle (Malaysia) is a company with the strategic direction of Nutrition, Health and Wellness. This company also commitment to provide quality products to consumer of Malaysia dates back more than 90 years ago. Besides, they also provide many healthy choices of consumer’s food and beverages. Nestle (Malaysia) have an intention to make consumer’s life more pleasurable because their product not only have nutritious and also good taste. Furthermore, they also believe that good food is treating consumer themselves better.

Nestle have a business objective of manufacture and market the Nestlé’s product to create value that can be sustained over the long term for shareholders, employees, consumers, business partners and huge number of national economies in which Nestle operates. Nestle (Malaysia) not prefer using short term profit at the expense of successful long –term business development. But Nestle recognise the need to generate the healthy profit at every year in order to maintain the shareholder’s support, financial market and to finance investments.Nestle (Malaysia) had make profit from year 2007 to year 2009 but this company also have facing difficulties when economic downturn. During economic downturn, many large and small businesses are trying to maintain their previous performances.

Nestle (Malaysia) are one of the business whose challenge to recover previous performance when the difficult period happened. Moreover, Nestle (Malaysia) also have a philosophy of deliver shareholder value by the achievement of sustainable and profitable long-term growth.Using the top-down approach, it can let investors to analyse the market from the big picture all the way down to individual stocks. Economic analysis is an analysis which concerned the economy of general state and the potential effect on the security returns. However, Industry analysis is concerned about the industry’s competitor of the company and how the company operates. The last part is Fundamental Analysis which analysis about company financial condition and operating result of Nestle (Malaysia).

From the analysis above, we can know clearer and broader with the company operations and condition. However the security analysis cannot help to predict future market behaviour, it is just pure analysis of the company for better understanding.As we know that, financial crisis is a situation of which the supply of money is outpaced by the demand for money. When financial crisis happened, many of financial institution will suddenly lose a large part of institution value. This will let numerous of large financial institution collapse but not included Nestle.One of the roots of financial crisis is failure of the global financial system but not inadequate aggregate global, or U.

S, demand. Financial crisis do not directly result in changes in the real economy unless a recession or depression follows but they will directly result in a loss of paper wealth. This situation had influence the Malaysian spending behaviour whose are very cautions. This will caused slightly changes of the Nestlé’s financial performance.Until the September 2009, many worldwide companies are still shrugging off the vestiges of economic recession. While the domestic and world economy had a sign of recovery in the fourth quarter of 2009.

But there will still many economists hold that the sustained global recovery is still vague, with some of them still expect for another correction before stabilised.Although the Malaysian had decreased their spending behaviour but Nestle (Malaysia) had remained firm on its course, led by a people who full of passion and dynamic team. This team is a team which accelerated the changes to meet buyer favourite and needs, stepped up innovation, and reduced spend and increase efficiencies. Nestle (Malaysia) had organize a group which name NCE (Nestle Continuous Excellence) with the slogan of “One team, 100% Engagement and Zero Waste”. In the current economic situation, NCE will play the role of helping company stay in competitive to ensure long-term profitable growth.The Chairman of Nestle (Malaysia) is pleased to report that the performance of Nestlé’s group is a testament to the sound policies and consistent strategies in place.

It also helped buffer the vagaries of the commodities market. Nestle (Malaysia) had make a profit from year 2007 to year 2009. For the financial year of 2009, Nestle (Malaysia) Berhad had achieved a turnover of RM3.7billion and 3.4% lower than the previous year, 2008.

This result was within the expectation considering the much challenged economic situation.Industry Analysis Industry analysis is deals with the industry within which a particular company operates and how the company is operating compares to major competitors in the industry, considering also the general outlook for that industry. Nestle is primarily aiming to serve the world at large with healthy food and beverages. They are focusing on the nutrition and healthiness of the foods launched. They are not only producing foods and beverages but the healthy one.

Furthermore, the company’s products are focusing on the development of milk and other healthy nutrition drinks. In contrast, Fonterra, Heinz and even Kraft foods are one of the few competitors of Nestle as they all are focusing on healthy food, healthy life.However in Malaysia, Fonterra seems to be the biggest competitor of Nestle. The most well known nutrition drinks will be the Anlene and Anchor from New Zealand.

They are operating with focuses on developing the simple nutrition of dairy in their products where their milk is pure milk from New Zealand. Moreover, Fonterra aims to bring the quality milk out to millions of people around the world by passing and nurture their farming expertise down for quality assurance. Also, Fonterra is leveraging their cow to consumer expertise to take leadership position using locally produced milk as in the growth markets; it is somehow not very practical to use New Zealand milk always. Furthermore, Fonterra is backed by US$50 million in order to do research regarding the bone science research when Anlene is formulated for adults in order to help them maintaining optimal health.

Not only to the bone, Anlene is also well-known in deliver quality milk formulas to boost the health of mothers and babies.In economic variables that drive the industry performance, Fonterra aims to remain low costs sustainable dairy co-operatives in the world. They are not focusing on giving nutritious beverages and foods too but at a reasonable low price. This however affects Nestle in the sense of price competition.

Fonterra is opening out a lot of branches and they have currently employed more than 2500 employees in 15 operating countries. In Malaysia, Fonterra have 76 per cent share of the adult milk category through its Anlene brand and 80 per cent share for prenatal dairy products with Anmum.People nowadays around the world are gaining health conscious and growing a taste for dairy products. Thus, the increasingly hectic lifestyles had makes the consumers favour and demand for nutritious, convenience yet nice favouring consumption.

Like Nestle did, Fonterra also come out with variety of milk products, biscuits, baby formula and cheese in order to satisfy consumer wants. In order to compete and maintain the position of health food and beverages, Nestle should be more innovative in order to develop more health products that satisfy consumer demands.